Initial public offering (IPO)

Quick facts

An Initial public offering (IPO) marks the first time a company sells shares to the public. It’s also known as ‘listing’ or ‘floating’ on the public markets – which in the UK means a ‘new issue’ on the London Stock Exchange.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eIf you’re lucky enough to have a u003ca href=u0022 of more than £5m (or you’ve reached unicorn status!) you might entertain the idea of an initial public offering (IPO).u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eIn a UK IPO, you can sell shares in your business via three public markets operated by the London Stock Exchange:rnu003culu003ern tu003cliu003eu003cstrongu003eMain Market (Premium) u003c/strongu003e– for established companies (home of the FTSE 100 and 250 indices)u003c/liu003ern tu003cliu003eu003cstrongu003eMain Market (High Growth Segment) u003c/strongu003e– for high-growth companies that in time want to become Premium listed companiesu003c/liu003ern tu003cliu003eu003cstrongu003eAlternative Investment Market (AIM)u003c/strongu003e – for smaller, growing businesses looking to scale up to mature businessesu003c/liu003ernu003c/ulu003e

An IPO is the first time a business raises finance publicly (before an IPO, you can only raise funds privately). Going public allows you to raise large sums of money from new investors (e.g. for expansion) and gain a large number of new shareholders while retaining control of your company). Existing (private) equity investors might drive an IPO because they’re looking to sell their stakes in your business.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eAn IPO is often called long-term, patient capital because once you have gone public; you can raise money time and time again, over years and even decades.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003ePublic companies have to disclose financial information regularly. This means keeping shareholders and the market (including your competitors) updated with half-yearly and annual results. u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eFor more information you can read the London Stock Exchange’s u003ca href=u0022 target=u0022_blanku0022 rel=u0022noreferrer noopeneru0022u003eGuideu003c/au003e to listing.

Getting to an IPO stage is a milestone. Being a publicly traded company means your business has raised its profile to ‘blue-chip’ status. u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eIf you want to raise capital to fund further growth or finance existing debt, being listed on a stock exchange opens your business to vast number of potential investors with an unlimited number of financing options.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eAlso an IPO is an excellent way of monetising assets. u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003ePlease note that only established businesses with an annual revenue of £5m are able to go public.

u003ca href=u0022 data-rich-text-format-boundary=u0022trueu0022u003eEquity financingu003c/au003e – refers to the capital an external investor injects into your business in return for a share of ownership (equity) and/or some control of the business. Equity finance investors therefore have a claim on your future earnings but, in contrast to a loan, you don’t pay any interest – nor do you have to repay capital. If you opt for equity financing, you’ll sell a stake in your business in return for funds. u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003ca href=u0022 financingu003c/au003e – Debt financing is a broad term that covers any type of u003ca href=u0022 that you pay back, with interest, over a set period of time. A loan can come either from a lender – see u003ca href=u0022 loansu003c/au003e – or from selling bonds to the public.u003cbr data-rich-text-line-break=u0022trueu0022 /u003e u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003ca href=u0022 equityu003c/au003e – is a type of u003ca href=u0022 financingu003c/au003e suitable for established private businesses. Private Equity funds give your business money in return for a large or controlling share in your business.u003cbr data-rich-text-line-break=u0022trueu0022 /u003e u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003ca href=u0022 capitalu003c/au003e – is financing given to startups and early-stage businesses. Venture capital funds look to invest larger sums of money than u003ca href=u0022 angelsu003c/au003e – typically more than £250,000 – in return for an equity stake. Venture capital is most suited to high-growth businesses with long-term growth potential, i.e. those destined for sale or public listing (IPO).

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